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Stiglitz: only independence will let Scots tackle income divide

THE Nobel prize-winning economist who helped draw up Alex Salmond's fiscal and economic blueprint for independence has warned Scottish economic growth would suffer unless the country broke away from the UK pattern of growing inequality.

Professor Joseph Stiglitz served on the Fiscal Commission and its working group under chairman Crawford Beveridge, which reported this week on how an independent Scotland within a Sterling zone could flourish.

The US expert is understood to have pressed for the inclusion of a section in the report making the direct link between social and economic inequality and stunted economic growth.

Mr Stiglitz said countries which are more unequal do not grow as well and are less stable. A concentration of income restricts economic growth by limiting the potential of people to contribute productively.

At the same time inequality may restrict government investment in infrastructure, education, and technology.

The working group report pointed out that since 1975 the income gap had grown faster in the UK than in any other developed country. It added: "Such patterns of inequality will continue to have a negative impact on growth and prosperity over the long-term."

But it concluded that "without access to the relevant policy levers – particularly taxation and welfare policy – there is little the Scottish Government can do to address these trends".

The report comes just days after the Resolution Foundation think-tank said the top 1% of earners have seen their slice of the pie increase from 7% in the mid-1990s to 10% today, while the bottom half have seen their share drop from 19% to 18%.

It also warned Britain faces a living standards crisis, with millions of households failing to regain the losses they suffered during the downturn.

It cited Office for National Statistics figures showing pay rises have been outstripped by inflation, with average earnings back to 2003 levels of £11.21 per hour.

Kevin Stewart, an SNP member of Holyrood's Welfare Reform Committee, said: "Economic growth and prosperity are undermined by high rates of income inequality, leaving us all worse off as a result. Addressing this growing and worrying trend should be a priority for any government."

The standard measure of income inequality is the Gini coefficient, which ranks the UK as 28th and the US 31st out of 34 OECD countries.

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